Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 1 of 26 Page ID #:10

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1 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 1 of 26 Page ID #:10 I EDWARD J. MCINTYRE [SBN emcintyyre((^^swsslaw.com 2 RICHART&"E. MCCARTHY [SBN rmccarthswsslaw.com y 3 SOLOM6 WARD SEIDENWURM & SMITH, LLP I 401 B Street Suite 1200 m 4 San Diego, California =v, Telephone: (619) ^^^ J 5 Facsimile: (619) a^^ 6 Attorneys for Plaintiff, Timothy F. Madden a^ w ro ^ 7 C3 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA, SOUTHERN DIVISION 10 1 I TIMOTHY F. MADDEN, CASE NO. CV PA (PJWx) 12 Plaintiff, COMPLAINT FOR VIOLATION OF FEDERAL AND CALIFORNIA 13 v,securities LAWS AND COMMON LAW FRAUD AND t4 JERRY L. AUBREY, an individual- DECEIT CAROL DEE AUBREY an individual; 15 PROGRESSIVE ENERGY AND PARTNERS, LLC, a Nevada Limited 16 Liability Comppany PROGRESSIVE DEMAND FOR JURY TRIAL ENERGY PARTNERS, LLC, # 1, a 17 Nevada Limited Liability Company; PROGRESSIVE ENERGY 18 PARTNERS, LLC # 2, a Nevada '^ ;^ ; Limited Liability Company, 19 PROGRESSIVE ENERGY PARTNERS, LLC, # 3,, a Company ; 20 PROGRESSIVE ENERGY 21 PARTNERS, LLC # 4, a Nevada Limited Liability Company, 22 Defendants P:005e2474:09334.W: COMPLAINT FOR VIOLA rion OF FEDERAL AND CALIFORNIA SECURITIES LAWS AND COMMON

2 Case 2: 1 0-cv PA -PJW Document 1 Filed 08/17/10 Page 2 of 26 Page ID #:11 1 PREAMBLE 2 This case evidences a genuine low in fraudulent conduct. Jerry L. Aubrey 3 and Carol Dee Aubrey, individually and through sham companies they formed and 4 controlled, took advantage of Timothy Madden and engaged in an ongoing and 5 continuing fraud. They made false statements and misrepresentations about claimed 6 oil and gas well development, and willfully suppressed material facts necessary to 7 make statements they made not false and misleading. 8 Timothy Madden trusted the Aubreys, and relied on what they said and relied 9 on them fairly to disclose all material facts. The Aubreys, however, betrayed that 10 trust and defrauded Timothy Madden into investing in their companies, as a result of 11 which Timothy Madden suffered more than $1.4 million in money damages. 12 Worse, Timothy Madden has now learned that the Aubreys have pocketed and 13 continue to pocket money that is rightfully his. 14 PARTIES 15 Plaintiff Plaintiff Timothy F. Madden is a citizen and resident of Minnesota. 17 Defendants Defendant Jerry L. Aubrey is a citizen of California and resides in, and 19 is engaged in business within, this district. On information and belief, Jerry L. 20 Aubrey is and was a principal in, and manager and officer of, defendants 21 Progressive Energy Partners, LLC; Progressive Energy Partners, LLC, # 1; 22 Progressive Energy Partners, LLC, # 2; Progressive Energy Partners, LLC, # 3; and 23 Progressive Energy Partners, LLC, # Defendant Carol Dee Aubrey is a citizen of California and resides in, 25 and is engaged in business within, this district. On information and belief, Carol 26 Dee Aubrey is and was president of defendants Progressive Energy Partners, LLC; 27 Progressive Energy Partners, LLC, # 1; Progressive Energy Partners, LLC, # 2; 28 Progressive Energy Partners, LLC, # 3; and Progressive Energy Partners, LLC, # 4. P: :

3 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 3 of 26 Page ID #: Where appropriate, Timothy Madden refers to Jerry L. Aubrey and 2 Carol Dee Aubrey as the individual Aubrey defendants Defendant Progressive Energy Partners, LLC ( Progressive Energy ) is 4 a Nevada limited liability company with its principal place of business within this 5 district and, at all relevant times, engaged in the securities fraud alleged within this 6 district Progressive Energy Partners, LLC, # 1 ( PEP #1 ) is a Nevada limited 8 liability company with a principal place of business within this district and, at all 9 relevant times, engaged in the securities fraud alleged within this district Progressive Energy Partners, LLC, # 2 ( PEP #2 ) is a Nevada limited 11 liability company with a principal place of business within this district and, at all 12 relevant times, engaged in the securities fraud alleged within this district Progressive Energy Partners, LLC, # 3 ( PEP #3 ) is a Nevada limited 14 liability company with a principal place of business within this district and, at all 15 relevant times, engaged in the securities fraud alleged within this district Progressive Energy Partners, LLC, # 4 ( PEP #4 ) is a Nevada limited 17 liability company with a principal place of business within this district and, at all 18 relevant times, engaged in the securities fraud alleged within this district Where appropriate, Timothy Madden refers to Progressive Energy and 20 PEP #1, PEP #2, PEP #3 and PEP #4 as the corporate defendants. 21 JURISDICTION AND VENUE This Court has subject matter jurisdiction of this action pursuant to U.S.C and 1337 and 27 of the Exchange Act of 1934 (15 U.S.C. 77aa). 24 Timothy Madden s claims arise under Section 10(b) and 20(a) of the Exchange Act 25 (15 U.S.C. 78j(b) and 78t(a)) and Rule 10b-5 promulgated by the Securities 26 Exchange Commission ( SEC ) (17 C.F.R b-5) and 12 and 17 of the 27 Securities Act of 1933 (15 U.S.C. 77l and 77q) This Court also has subject matter jurisdiction of this action pursuant to P: :

4 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 4 of 26 Page ID #: U.S.C in that it is an action between citizens of different states 2 (Minnesota, on the one hand, and California and Nevada, on the other), and the 3 amount in controversy, at least $1.4 million, exceeds $75,000 exclusive of interest 4 and costs Finally, this Court has supplemental jurisdiction over the state law 6 claims pursuant to 28 U.S.C. 1367(a) because they are related to claims within this 7 Court s original jurisdiction such that they form part of the same case or controversy 8 under Article III Venue is proper in this district pursuant to 27 of the Exchange Act 10 and 28 U.S.C. 1391(b) because many of the acts giving rise to the violations of 11 which Timothy Madden complains took place in this district and the individual 12 Aubrey defendants and the corporate defendants used the instrumentalities of 13 interstate commerce including wire and mail in connection with the sale of 14 unregistered securities in this district; the purchase of the unregistered securities 15 were solicited from this district and Timothy Madden sent payments to the 16 individual Aubrey defendants and the corporate defendants for his purchase of those 17 unregistered securities into this district In connection with the acts alleged, the individual Aubrey defendants 19 and the corporate defendants, directly or indirectly, used the means of 20 instrumentalities of interstate commerce including, but not limited to, the mail and 21 interstate wire and telephone communications. 22 THE INDIVIDUAL AUBREY DEFENDANTS ARE ALTER-EGOS OF THE 23 CORPORATE DEFENDANTS There exists, and at all relevant times has existed, a unity of interest and 25 ownership between the individual Aubrey defendants, on one hand, and the 26 corporate defendants, on the other, such that any individuality and separateness 27 between the individual Aubrey defendants and the corporate defendants has ceased. 28 As a consequence, the individual Aubrey defendants are the alter-ego of the P: :

5 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 5 of 26 Page ID #:14 1 corporate defendants Further, adherence to the fiction of the separate existence of the 3 corporate defendants as entities distinct from the individual Aubrey defendants 4 would permit an abuse of the corporate privilege and would promote injustice in that 5 the individual Aubrey defendants acts led Timothy Madden to deal with 6 inadequately financed corporate entities The corporate defendants are, and at all relevant times were, mere 8 shells or shams without adequate capital or assets and were conceived, intended, and 9 used by the individual Aubrey defendants as a device to avoid individual liability 10 and for the purpose of substituting financially insolvent entities in their place The corporate defendants are, and were at all relevant times, so 12 inadequately capitalized that, compared with the business they claimed they did and 13 the risks of loss, any capitalization was illusory Timothy Madden is informed and believes that the corporate 15 defendants never had any assets or capital in their name and the individual Aubrey 16 defendants never contributed any capital into any account held by the corporate 17 defendants The corporate defendants had no other business than the sale of 19 unregistered securities and were not going concerns or viable and valid business 20 entities. In reality, they were merely shells, instrumentalities, or conduits through 21 which the individual Aubrey defendants carried out their fraudulent scheme Timothy Madden is also informed and believes that the corporate 23 defendants did not maintain adequate corporate records Further, the lack of separateness between the individual Aubrey 25 defendants and the corporate defendants, and the individual Aubrey defendants 26 control and domination of the corporate defendants is further underscored by the 27 fact that the corporate defendants used the same offices and business locations as the 28 individual Aubrey defendants and had no separate offices of their own. P: :

6 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 6 of 26 Page ID #: Thus, Timothy Madden is informed and believes that the corporate 2 defendants are mere shells and instrumentalities through which the individual 3 Aubrey defendants conducted business, and carried out this fraudulent scheme, that 4 the individual Aubrey defendants are the alter ego of the corporate defendants, and 5 that fraud and injustice can only be avoided by disregarding the separate existence 6 of the corporate defendants. 7 MATERIAL ALLEGATIONS 8 The Sale and Purchase of Unregistered Securities In 2006 and 2009, the individual Aubrey defendants and the corporate 10 defendants, by means of private placement memoranda and other written solicitation 11 material, solicited Timothy Madden to purchase, and they sold to Timothy Madden, 12 unregistered securities in entities identified as PEP #1, PEP #2, PEP #3 and PEP # In doing so, the individual Aubrey defendants and the corporate 14 defendants used the instrumentalities of interstate commerce in connection with the 15 sale and purchase of those unregistered securities The individual Aubrey defendants and the corporate defendants 17 solicited and effected the sale of unregistered securities by use of private placement 18 memoranda for each entity: PEP #1; PEP #2; PEP #3; and PEP # In those private placement memoranda, corporate defendant 20 Progressive Energy identified itself as both the custodian and issuer of the 21 securities of the respective LLC s: PEP #1; PEP #2; PEP #3; and PEP # Timothy Madden is informed and believes, that the securities were not 23 registered with either the SEC or the California securities authorities or the 24 securities authorities of any jurisdiction Timothy Madden has paid the Aubrey defendants and the corporate 26 defendants in excess of $1.4 million in connection with his purchase of the securities 27 of PEP #1; PEP #2; PEP #3; and PEP # Timothy Madden is informed and believes that none of the corporate P: :

7 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 7 of 26 Page ID #:16 1 defendants remains an operating business. Nevada s official records show the 2 corporate entities in default Timothy Madden is informed and believes that the individual Aubrey 4 defendants and defendant Progressive Energy acted as control persons within the 5 meaning of 20(a) of the Exchange Act, as he further alleges below. 6 The Material Misrepresentations and Non-Disclosures In connection with the purchase and sale of those unregistered 8 securities, the individual Aubrey defendants and the corporate defendants Timothy 9 Madden is informed and believes based on information he recently acquired made 10 material misrepresentations of fact and failed to disclose material facts, disclosure of 11 which was necessary to make what they stated not false and misleading Specifically, the individual Aubrey defendants and the corporate 13 defendants falsely represented in written solicitation materials and private placement 14 memoranda they gave to Timothy Madden that the individual Aubrey defendants 15 and the corporate defendants intended to use the proceeds from the sale of those 16 securities to develop oil and gas wells in West Virginia In addition, in order further to induce Timothy Madden to purchase 18 unregistered securities, the individual Aubrey defendants and the corporate 19 defendants represented: a greater than 50% annual rate of return; a return of capital 20 in 12 to 24 months; better than 10 to 1 potential return on investment; tax benefits of % right-off in the first year; and 15% of revenue tax free Timothy Madden is informed and believes that the individual Aubrey 23 defendants and the corporate defendants knew those material misrepresentations 24 were false and misleading when they made them and knew that Timothy Madden 25 did not know that those representations were false Timothy Madden is also informed and believes that the individual 27 Aubrey defendants and the corporate defendants withheld material information from 28 him that he was entitled to receive. P: :

8 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 8 of 26 Page ID #: Timothy Madden is informed and believes that none of the individual 2 Aubrey defendants or the corporate defendants ever owned any oil, gas, or other 3 mineral rights, leases or properties in West Virginia, or elsewhere, nor did they have 4 the right to develop the oil and gas wells they represented Instead, Timothy Madden is informed and believes that Ecology 6 Energy, Inc. actually owned the oil and gas wells that the individual Aubrey 7 defendants and the corporate defendants claimed the right to develop Timothy Madden is now informed and believes that defendants did not 9 intend to use the money they raised through their sale of unregistered securities to 10 develop oil and gas wells in West Virginia for the benefit of investors in Progressive 11 Energy or PEP #1; PEP #2; PEP #3; and PEP #4 or to develop any other oil or gas 12 properties as they represented Rather, Timothy Madden is informed and believes, based on 14 information recently acquired, that the individual Aubrey defendants and the 15 corporate defendants intended to use, and in fact used, the funds they raised by the 16 sale of unregistered securities for their own purposes, a fact they both affirmatively 17 misrepresented and withheld from Timothy Madden Timothy Madden is further informed and believes that the individual 19 Aubrey defendants and the corporate defendants took the funds that he paid to them 20 in connection with their sales and his purchases of unregistered securities and 21 themselves invested them for their own benefit with or through Ecology Energy in 22 various oil and gas wells in West Virginia, or otherwise Timothy Madden is further informed and believes that the individual 24 Aubrey defendants and the corporate defendants have siphoned to their own use 25 funds that Ecology Energy paid as a result of oil and gas well investments. 26 Prior Securities Violations and Violation of the Permanent Injunction Timothy Madden is now also informed and believes that in 1998 Jerry 28 Aubrey was part of a securities fraud that sold investments in a fictitious cruise ship P: :

9 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 9 of 26 Page ID #:18 1 with gambling facilities called Casino Cruise that purportedly operated between 2 Mexico and Los Angeles Timothy Madden has now learned that the ship did not exist. Instead, 4 Aubrey was one of the salesmen operating out of a boiler room selling the bogus 5 investment securities. He was not licensed to sell securities as a broker or 6 otherwise Timothy Madden has now learned that the two principal authors of that 8 scam took more than $900,000 from more than 120 investors and the SEC accused 9 them of diverting $355,000 of investor funds into an off-shore account, that Jerry 10 Aubrey was ordered to pay a civil penalty and that this Court permanently enjoined 11 Aubrey from violating United States securities laws in the future Jerry Aubrey s conduct, as alleged in this complaint, violates this 13 Court s permanent injunction In connection with the offer and sale of the unregistered securities to 15 Timothy Madden, the individual Aubrey defendants and the corporate defendants 16 never disclosed the following material information: 17 a. On March 19, 1999, the SEC obtained a judgment against Jerry 18 L. Aubrey for acting as a broker in the sale of stocks and failing 19 to register with the SEC as a broker as required by federal law; 20 b. On April 16, 2003, the Texas State Securities Board issued a 21 Cease and Desist Order against Carol Aubrey and Jerry L. 22 Aubrey to cease and desist from offering unregistered securities 23 in Texas; 24 c. On January 12, 2007, the South Dakota Department of Revenue 25 and Regulation Division of Securities issued a Cease and Desist 26 Order against Progressive Energy Partners, LLC., Progressive 27 Energy Partners, LLC. #2, and all the officers, directors, brokers, 28 agents and employees to cease and desist from offering P: :

10 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 10 of 26 Page ID #:19 1 unregistered securities in South Dakota; and 2 d. On April 15, 2008, the Commonwealth of Pennsylvania issued a 3 Cease and Desist Order against Progressive Energy Partners, 4 LLC., Progressive Energy Partners, LLC. #4, and every 5 successor, affiliate, control person, agent, servant and employee 6 to cease and desist from offering and selling "Units" in the 7 Commonwealth of Pennsylvania The individual Aubrey defendants and the corporate defendants never 9 disclosed this material information in connection with the sale of unregistered 10 securities to Timothy Madden Timothy Madden has now also learned that on October 29, 2009, the 12 California Department of Corporations obtained a Desist and Refrain order that the 13 individual Aubrey defendants and the corporate defendants refrain from the offer 14 and sale of securities in the State of California unless and until they are qualified 15 under California securities laws or unless exempt In addition, Timothy Madden has further learned that on October 2, the state of Washington, Department of Financial Institutions, Securities 18 Division issued charges against the individual Aubrey defendants and the corporate 19 defendants for fraud and deceit in connection with the sale of unregistered securities 20 in the state of Washington, and that on February 4, 2010, the Arizona Corporation 21 Commission issued charges against the individual Aubrey defendants and the 22 corporate defendants for the sale of unregistered securities in Arizona. 23 THE SAFE HARBOR PROVISION IS INAPPLICABLE The statutory safe harbor provided for forward-looking statements 25 under certain circumstances does not apply to any of the false statements Timothy 26 Madden pleads in this complaint. The statements pled were not identified as 27 forward-looking statements when made. To the extent there were any forward- 28 looking statements, there were no meaningful cautionary statements identifying P: :

11 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 11 of 26 Page ID #:20 1 important factors that could cause actual results to differ materially from those in the 2 purportedly forward-looking statements Alternatively, to the extent that the statutory safe harbor does apply to 4 any forward-looking statements made, the individual Aubrey defendants and the 5 corporate defendants are liable for those false forward-looking statements because at 6 the time the individual Aubrey defendants and the corporate defendants made each 7 of those forward looking statements, the individual Aubrey defendants and 8 Progressive Energy and the respective corporate defendants knew that the particular 9 forward-looking statement was false, and/or the forward-looking statement was 10 authorized and/or approved by an executive officer of the corporate defendants who 11 knew that the statement was false when made or who concealed material facts 12 regarding the falsity of the forward looking statement. 13 LOSS CAUSATION/ECONOMIC LOSS At all relevant times, as detailed above, the individual Aubrey 15 defendants and the corporate defendants engaged in a scheme and course of conduct 16 to create and then manipulate a market for and artificially inflate the price of 17 unregistered securities The individual Aubrey defendants and the corporate defendants carried 19 out this scheme by making false and misleading statements to Timothy Madden 20 about the unregistered securities they sold and by manipulating that securities 21 market When the individual Aubrey defendants and the corporate defendants 23 prior misrepresentations and omissions were disclosed and Timothy Madden 24 became aware of them, the market for those securities had collapsed As a result of his purchases of unregistered securities from the 26 individual Aubrey defendants and the corporate defendants, Timothy Madden has 27 suffered economic loss, i.e., damages under the federal securities laws in that the 28 securities have substantially less value than what the individual Aubrey defendants P: :

12 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 12 of 26 Page ID #:21 1 and the corporate defendants represented The damages that Timothy Madden suffered were a direct result of the 3 individual Aubrey defendants and the corporate defendants false statements and 4 their manipulation of the market until Timothy Madden finally knew the nature and 5 extent of defendants fraud. 6 FIRST CLAIM FOR RELIEF 7 VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 8 10b-5 9 (Against All Defendants) Timothy Madden incorporates by this reference each allegation in 11 paragraphs 1 through 58, above At all times relevant, the individual Aubrey defendants and the 13 corporate defendants carried out a plan, scheme and course of conduct which was 14 intended to and did: (i) deceive Timothy Madden as alleged above; (ii) enable the 15 individual Aubrey defendants and the corporate defendants to sell unregistered 16 securities to Timothy Madden; and (iii) cause Timothy Madden to purchase 17 unregistered securities from the individual Aubrey defendants and the corporate 18 defendants at artificially inflated prices. In furtherance of this unlawful scheme, 19 plan and course of conduct, each defendant, jointly and individually took the actions 20 stated above The individual Aubrey defendants and the corporate defendants: (a) 22 employed devices, schemes, and artifices to defraud; (b) made untrue statements of 23 material fact and/or omitted to state material facts necessary to make the statements 24 not misleading; and (c) engaged in acts, practices, and a course of business which 25 operated as a fraud and deceit upon the purchasers of unregistered securities from 26 the individual Aubrey defendants and the corporate defendants, and specifically 27 Timothy Madden in violation of Section 10(b) of the Exchange Act and Rule 1 0b Timothy Madden sues each defendant either as a primary participant in P: :

13 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 13 of 26 Page ID #:22 1 the wrongful and illegal conduct charged or as a controlling person as alleged 2 below The individual Aubrey defendants and the corporate defendants, 4 individually and in concert, directly and indirectly, by the use, means or 5 instrumentalities of interstate commerce and/or of the mails, each engaged and 6 participated in a continuous course of conduct to make misrepresentations of 7 material facts and to conceal adverse material information about the unregistered 8 securities defendants sold, as specified in this complaint The individual Aubrey defendants and the corporate defendants 10 employed devices, schemes and artifices to defraud, while in possession of material 11 adverse non-public information, and engaged in acts, practices, and a course of 12 conduct as alleged above in an effort to assure Timothy Madden that the 13 unregistered securities the individual Aubrey defendants and the corporate 14 defendants sold were suitable for investors like Timothy Madden, which included 15 the making of, or the participation in the making of, untrue statements of material 16 facts and omitting to state material facts necessary in order to make the statements 17 made about the unregistered securities in the light of the circumstances in which 18 they were made, not misleading, as set forth more particularly above, and engaged 19 in transactions, practices and a course of business which operated as a fraud and 20 deceit upon Timothy Madden as a purchaser of unregistered securities from the 21 individual Aubrey defendants and the corporate defendants The individual Aubrey defendants and the corporate defendants had 23 actual knowledge of the misrepresentations and omissions of material facts set forth, 24 or acted with deliberate disregard for the truth in that they failed to ascertain and to 25 disclose such facts. The individual Aubrey defendants and the corporate 26 defendants material misrepresentations and/or omissions were done knowingly or 27 deliberately and for the purpose and effect of concealing the truth about the 28 unregistered securities from Timothy Madden. If any individual defendant did not P: :

14 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 14 of 26 Page ID #:23 1 have actual knowledge of the misrepresentations and omissions alleged, it was 2 reckless in failing to obtain such knowledge by deliberately refraining from taking 3 those steps necessary to discover whether those statements were false or misleading As a result of the dissemination of the materially false and misleading 5 information and/or failure to disclose material facts, as set forth above, the market 6 and prices of the unregistered securities the individual Aubrey defendants and the 7 corporate defendants sold to Timothy Madden were manipulated and were 8 artificially inflated In ignorance of the fact that the market prices of unregistered securities 10 were manipulated and artificially inflated, and relying directly or indirectly on the 11 false and misleading statements and/or omissions the individual Aubrey defendants 12 and the corporate defendants made, and/or on the absence of material adverse 13 information that the individual Aubrey defendants and the corporate defendants 14 knew or deliberately disregarded but that the individual Aubrey defendants and the 15 corporate defendants did not disclose in public statements, Timothy Madden 16 acquired and continues to hold unregistered securities the individual Aubrey 17 defendants and the corporate defendants sold at artificially high prices and is 18 damaged as a direct and proximate result At the time of these misrepresentations and omissions, Timothy 20 Madden was ignorant of their falsity, and believed them to be true. Had Timothy 21 Madden known the truth regarding the manipulation of and risks associated with the 22 unregistered securities the individual Aubrey defendants and the corporate 23 defendants sold, which those defendants did not disclose, Timothy Madden would 24 not have purchased and continued to hold the unregistered securities By virtue of the foregoing, the individual Aubrey defendants and the 26 corporate defendants have violated Section 10(b) of the Exchange Act, and Rule b As a direct and proximate result of the individual Aubrey defendants P: :

15 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 15 of 26 Page ID #:24 1 and the corporate defendants wrongful conduct, Timothy Madden suffered money 2 damages of at least $1.4 million, the exact amount of which he will prove at trial, in 3 connection with his respective purchases of unregistered securities that the 4 individual Aubrey defendants and the corporate defendants sold. 5 SECOND CLAIM FOR RELIEF 6 VIOLATION OF SECTION 20(A) OF THE EXCHANGE ACT 7 (Against The Individual Aubrey Defendants and Progressive Energy) Timothy Madden incorporates by this reference each allegation in 9 paragraphs 1 through 70, above The individual Aubrey defendants acted as a control person of 11 defendants Progressive Energy and PEP #1; PEP #2; PEP #3; and PEP #4 within the 12 meaning of Section 20(a) of the Exchange Act as alleged above The individual Aubrey defendants had the power to influence and 14 control and did influence and control, directly or indirectly, the decision-making by 15 defendants Progressive Energy and PEP #1; PEP #2; PEP #3; and PEP #4, including 16 the content and dissemination of the various statements which Timothy Madden 17 contends are false and misleading In addition, defendant Progressive Energy acted as a control person of 19 PEP #1, PEP #2, PEP #3 and PEP #4, within the meaning of Section 20(a) of the 20 Exchange Act as alleged above Defendant Progressive Energy had the power to influence and control 22 and did influence and control, directly or indirectly, the decision-making by PEP #1, 23 PEP #2, PEP #3 and PEP #4, including the content and dissemination of the various 24 statements which Timothy Madden contends are false and misleading As set forth above, the individual Aubrey defendants and the corporate 26 defendants each violated Section 10(b) and Rule 10b-5 by their acts and omissions 27 as alleged in this complaint By virtue of their positions as controlling persons, the individual P: :

16 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 16 of 26 Page ID #:25 1 Aubrey defendants and defendant Progressive Energy are liable pursuant to Section 2 20(a) of the Exchange Act As a direct and proximate result of defendants wrongful conduct, 4 Timothy Madden suffered money damages of at least $1.4 million, the exact amount 5 of which he will prove at trial, in connection with its purchase and retention of 6 unregistered securities from defendants. 7 THIRD CLAIM FOR RELIEF 8 VIOLATION OF THE SECURITIES ACT OF (Against All Defendants) Timothy Madden incorporates by this reference the allegations in 11 paragraphs 1 through 78, above The individual Aubrey defendants and the corporate defendants 13 conduct as alleged above violates the Securities Act of 1933, 15 U.S.C. 77a, et 14 seq. ( the Act ), and specifically Sections 12 and 17 of the Act, 15 U.S.C. 77l 15 and 77q, in that defendants used interstate commerce for fraud and deceit and 16 offered and sold securities in interstate commerce with written material, including 17 the private placement memoranda for PEP #1, PEP #2, PEP #3 and PEP #4, that 18 included untrue statements of material fact and omissions of material fact As a direct and proximate result, Timothy Madden has suffered money 20 damages at least in excess of $1.4 million, the exact amount of which he will prove 21 at trial. 22 FOURTH CLAIM FOR RELIEF 23 VIOLATIONS OF CALIFORNIA CORPORATION CODE AND (Against All Defendants) Timothy Madden incorporates by this reference the allegations in 27 paragraphs 1 through 81, above The shares that the individual Aubrey defendants and the corporate P: :

17 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 17 of 26 Page ID #:26 1 defendants sold to Timothy Madden were securities as of the California 2 Corporations Code defines the term The individual Aubrey defendants and the corporate defendants are 4 liable to Timothy Madden under California Corporations Code 25400(d) and because they sold or offered to sell securities, and made statements or 6 willfully participated in the making of such statements for the purposes of inducing 7 Timothy Madden to purchase such securities As alleged above, those statements were, at the time and in the light of 9 the circumstances under which they were made, false or misleading with respect to 10 material facts, and omitted to state material facts necessary in order to make the 11 statement made, in the light of the circumstances under which they were made, not 12 misleading The individual Aubrey defendants and the corporate defendants knew 14 or had reasonable grounds to believe that the statements and omissions were false or 15 misleading The misrepresentations and material omissions proximately injured 17 Timothy Madden in excess of $1.4 million, the exact amount of which he will prove 18 at trial. 19 FIFTH CLAIM FOR RELIEF 20 VIOLATION OF CALIFORNIA CORPORATIONS CODE AND (Against All Defendants) Timothy Madden incorporates by this reference the allegations in 24 paragraphs 1 through 87, above The shares that the individual Aubrey defendants and the corporate 26 defendants sold to Timothy Madden were securities as of the California 27 Corporations Code defines the term The individual Aubrey defendants and the corporate defendants are P: :

18 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 18 of 26 Page ID #:27 1 liable to Timothy Madden under and of the California Corporations 2 Code because each offered to sell and sold securities in California by means of 3 written or oral communications, and including the private placement memoranda for 4 PEP #1, PEP #2, PEP #3 and PEP #4, that included untrue statements of material 5 facts and omitted to state material facts necessary in order to make the statements 6 made, in the light of the circumstances under which they were made, not misleading The material misrepresentations and omissions proximately injured 8 Timothy Madden in excess of $1.4 million, the exact amount of which will be 9 proven at trial. 10 SIXTH CLAIM FOR RELIEF 11 FRAUD AND DECEIT 12 (Against All Defendants) Timothy Madden incorporates by this reference the allegations in 14 paragraphs 1 through 91, above. 15 Misrepresentations of Material Facts As alleged above, the individual Aubrey defendants and the corporate 17 defendants made representations of material fact to Timothy Madden both before 18 defendants drew Timothy Madden into their investment scheme and he invested in 19 the unregistered securities, and continuing thereafter Those representations were false Timothy Madden is informed and believes that the individual Aubrey 22 defendants and the corporate defendants knew that the representations were false 23 when they made them or they made those representations recklessly without 24 knowing whether they were true or false Timothy Madden is informed and believes that the individual Aubrey 26 defendants and the corporate defendants made those representations with an intent 27 to defraud and deceive Timothy Madden and the individual Aubrey defendants and 28 the corporate defendants made those representations to induce Timothy Madden to P: :

19 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 19 of 26 Page ID #:28 1 rely on them and to act in reliance on them The true facts were that the defendants knew that Timothy Madden s 3 investment would not be used either to develop oil and gas wells in West Virginia Rather, Timothy Madden is now informed and believes that the 5 individual Aubrey defendants and the corporate defendants intended to use any 6 proceeds they raised from the sale of those unregistered securities for their own 7 purposes When the individual Aubrey defendants and the corporate defendants 9 made the representations and omissions, Timothy Madden was ignorant that the 10 representations were false and believed them to be true Timothy Madden relied on these representations and omission and as a 12 result of those misrepresentations expended substantial sums of money Had Timothy Madden known the true facts he would never have 14 purchased unregistered securities from defendants or invested in Progressive Energy 15 PEP #1; PEP #2; PEP #3; and PEP #4. 16 Suppression of Material Facts Timothy Madden is informed and believes that the individual Aubrey 18 defendants and the corporate defendants knew the true, material facts concerning the 19 investment and knew that they were material to Timothy Madden, among other 20 investors Timothy Madden is informed and believes that the individual Aubrey 22 defendants and the corporate defendants willfully and intentionally concealed and 23 suppressed those material facts Timothy Madden is informed and believes that the individual Aubrey 25 defendants and the corporate defendants knew that Timothy Madden did not know 26 and could not reasonably discover these concealed and suppressed facts Timothy Madden is informed and believes that the individual Aubrey 28 defendants and the corporate defendants intentionally concealed and suppressed P: :

20 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 20 of 26 Page ID #:29 1 these facts with the intent to defraud Timothy Madden, among other investors Timothy Madden was unaware of these concealed and suppressed facts 3 and would not have acted as he did if he had known the concealed and suppressed 4 facts Because of the individual Aubrey defendants, and the corporate 6 defendants superior position, and their possession of material facts which only they 7 knew and which they knew that Timothy Madden did not know, and their 8 knowledge that these facts were material to Timothy Madden, the individual Aubrey 9 defendants and the corporate defendants had a duty to disclose these facts to 10 Timothy Madden and to any other investors By virtue of their intentional misrepresentation and by virtue of their 12 intentional concealment and suppression of material facts, the individual Aubrey 13 defendants and the corporate defendants fraudulently induced Timothy Madden to 14 purchase securities. 15 False Promises Timothy Madden is informed and believes that the individual Aubrey 17 defendants and the corporate defendants made the promises stated in the written 18 solicitation materials with the intent to defraud Timothy Madden, and that the 19 individual Aubrey defendants and the corporate defendants made those promises to 20 induce Timothy Madden to rely on them and to act in reliance on them Timothy Madden is informed and believes that the individual Aubrey 22 defendants and the corporate defendants made statements of fact, and suggestions 23 and assertions as facts, that were not true and that the individual Aubrey defendants 24 and the corporate defendants knew were not true and did not believe to be true and 25 had no reasonable grounds for believing to be true Timothy Madden is informed and believes that the individual Aubrey 27 defendants and the corporate defendants suppressed facts they were bound to 28 disclose, and gave information about other facts to Timothy Madden that were likely P: :

21 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 21 of 26 Page ID #:30 1 to mislead Timothy Madden because of the suppressed facts The individual Aubrey defendants and the corporate defendants owed 3 Timothy Madden a duty of full disclosure, honesty and candor, as well as a duty to 4 exercise reasonable care and to make a reasonable and diligent investigation of 5 statements they made to Timothy Madden and any other investors. 6 Damages The individual Aubrey defendants and the corporate defendants 8 committed fraud on Timothy Madden, as a direct and proximate result of which 9 Timothy Madden has suffered money damages in an amount which exceeds $ million, the exact amount of which he will prove at trial. 11 Punitive Damages The individual Aubrey defendants and the corporate defendants 13 conduct constitutes an intentional misrepresentation, false promise, deceit and 14 suppression of facts known to defendants, all with the intention of causing injury to 15 Timothy Madden, and was oppressive, fraudulent, malicious conduct as defined in 16 California Civil Code 3294 and Timothy Madden should recover, in additional to 17 actual damages, exemplary and punitive damages according to proof at trial. 18 SEVENTH CLAIM FOR RELIEF 19 FRAUD AND DECEIT FOR RESCISSION AND RESTITUTION DAMAGES 20 (Against All Defendants) Timothy Madden incorporates by this reference the allegations in 23 paragraphs 1 through 114, above As a direct and proximate result of the individual Aubrey defendants 25 and the corporate defendants fraud and deceit, as set forth above, Timothy Madden 26 is entitled to rescission and restitution damages, according to proof at trial but at 27 least $1.4 million. 28 P: :

22 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 22 of 26 Page ID #:31 1 EIGHTH CLAIM FOR RELIEF 2 NEGLIGENT MISREPRESENTATION 3 (Against All Defendants) Timothy Madden incorporates by this reference the allegations in 5 paragraphs 1 through 116, above The individual Aubrey defendants and the corporate defendants made 7 representations to Timothy Madden about existing material facts Timothy Madden is informed and believes that those representations 9 were false Timothy Madden is informed and believes that the individual Aubrey 11 defendants and the corporate defendants made those representations without a 12 reasonable ground for believing them to be true Timothy Madden is informed and believes that the individual Aubrey 14 defendants and the corporate defendants made those representations with the intent 15 to induce Timothy Madden to rely on them Timothy Madden was unaware of the falsity of the representations and 17 acted in reliance on the truth of the representations and was justified in acting in 18 relying on those representations As a result of his reliance on the truth of those representations, Timothy 20 Madden has sustained and continues to sustain money damages according to proof 21 at trial In engaging in the conduct alleged, the individual Aubrey defendants 23 and the corporate defendants made representations and statements of material facts 24 and omitted to state material facts necessary to make statements that they made, in 25 light of the circumstances in which they were made, not misleading, and necessary 26 to be stated in order that Timothy Madden would be informed of all material facts 27 necessary for Timothy Madden s decision to purchase the shares. The individual 28 Aubrey defendants and the corporate defendants made such representations and P: :

23 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 23 of 26 Page ID #:32 1 statements with the intent to induce Timothy Madden to rely on them In making the representations and statements and omitting to state 3 material facts, the individual Aubrey defendants and the corporate defendants acted 4 negligently in that they made those representations and statements without a 5 reasonable ground for believing them to be true and did not exercise due care in 6 investigating to determine the existence of the material facts omitted At the time of the representations, statements, and omissions, Timothy 8 Madden was unaware that they were false and misleading and was unaware that 9 there had been omissions of material facts. Timothy Madden justifiably relied on 10 these representations and statements and justifiably believed that there were no 11 omissions of material facts. As a result, Timothy Madden, and, he is informed and 12 believes others, were induced to purchase securities As a direct and proximate result of the misrepresentations and 14 omissions alleged, Timothy Madden has suffered money damages in excess of $ million the exact amount of which will be proven at trial. 16 NINTH CLAIM FOR RELIEF 17 VIOLATION OF BUSINESS & PROFESSIONS CODE (Against All Defendants) Timothy Madden incorporates by this reference the allegations in 20 paragraphs 1 through 127, above By their conduct, the individual Aubrey defendants and the corporate 22 defendants violated Business & Professions Code As a direct and proximate result of defendants violation of Business & 24 Professions Code 17200, set forth above, Timothy Madden is entitled to restitution 25 damages according to proof at trial but at least $1.4 million P: :

24 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 24 of 26 Page ID #:33 1 TENTH CLAIM FOR RELIEF 2 IMPOSITION OF CONSTRUCTIVE TRUST 3 (Against Individual Aubrey Defendants and Progressive Energy) Timothy Madden incorporates by this reference the allegations in 5 paragraphs 1 through 130, above Timothy Madden is informed and believes that the individual Aubrey 7 defendants and the corporate defendants have received moneys that rightfully 8 belong to him as a result of his purchase of the unregistered securities of PEP #1, 9 PEP #2, PEP #3 and PEP # By virtue of his investment in PEP #1, PEP #2, PEP #3 and PEP #4, 11 through his purchase of unregistered securities, Timothy Madden acquired a lien and 12 security interest in any proceeds the individual Aubrey defendants or defendant 13 Progressive Energy received from any oil, gas or mineral properties in West 14 Virginia or elsewhere Timothy Madden is informed and believes that the individual Aubrey 16 defendants and Progressive Energy have wrongfully, unfairly, unjustly, and 17 inequitably received, disbursed, and retained such proceeds for themselves In the circumstances alleged, it is unfair, unjust, and inequitable to 19 allow the individual Aubrey defendants or Progressive Energy to retain any such 20 proceed In the interests of fairness, justice, and equity, this Court can and 22 should issue an order and enter judgment: 23 a. Imposing a constructive trust over all such proceeds; 24 b. Decreeing that the individual Aubrey defendants and/or 25 Progressive Energy hold such funds in trust for the benefit of 26 Timothy Madden; and 27 c. Requiring the individual Aubrey defendants and Progressive 28 Energy to disgorge those funds and to restore those funds to P: :

25 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 25 of 26 Page ID #:34 1 Timothy Madden , Accordingly, Timothy Madden seeks, in addition to other relief, the 3 imposition of a constructive trust on any and all moneys the individual Aubrey 4 defendants and defendant Progressive Energy received from any oil or gas or other 5 mineral property in West Virginia or elsewhere. 6 WHEREFORE, plaintiff Timothy Madden demand judgment against Jerry 7 L. Aubrey, Carol Dee Aubrey, Progressive Energy Partners, LLC, Progressive 8 Energy Partners, LLC, # 1, Progressive Energy Partners, LLC, # 2, Progressive 9 Energy Partners, LLC, # 3, and Progressive Energy Partners, LLC, # 4, and the other 10 investor defendants, as follows: For compensatory damages in an amount to be proven at trial but at 12 least $1.4 million; For punitive damages in an amount to be proven at trial; For restitution in an amount to be proven at trial but at least $ million; For the imposition of a constructive trust on all moneys any defendant 17 received as a result of oil or gas or other mineral rights in West Virginia or 18 elsewhere; For attorneys fees and costs of suit; and For such other and further relief as this Court deems just and proper DATED: August 17, 2010 SMITH, OLLNWARD SEIDENWURM & By: OF.. Aw 6 WARD J. M "INTYRE 25 RICHARD E. MCCART Attorneys for Plaintiff, Timothy F. 26 Madden P: : COMPLAINT FOR VIOLATION FRAUD AND DECEIT AND DEMAND FOR JURY TRIAL AND COMMON

26 Case 2:10-cv PA -PJW Document 1 Filed 08/17/10 Page 26 of 26 Page ID #:35 1 DEMAND FOR JURY TRIAL 2 Plaintiff hereby demands a trial by jury of all issues triable to a jury. 3 DATED: August 17, 2010 SOLOMON WARD SEIDENWURM & 4 SMITH LLP 5 ^/ r 6 By WARD J. M TYRE 7 RICHARD E. MCCARTHY Attorneys for Plaintiff, Timothy F. 8 Madden P: : COMPLAINT FOR VIOLA TION FRAUD AND DECEIT AND DEMAND FOR JURY TRIAL AND COMMON